Fox Street Village Ltd ((in Administration))
| Jurisdiction | England & Wales |
| Judge | Halliwell |
| Judgment Date | 25 September 2020 |
| Neutral Citation | [2020] EWHC 2541 (Ch) |
| Court | Chancery Division |
| Date | 25 September 2020 |
| Docket Number | Case No: CR-2019-MAN-000468 and CR-2020-MAN-000366 |
[2020] EWHC 2541 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
INSOLVENCY AND COMPANIES LIST (ChD)
Judge Halliwell sitting as a Judge of the High Court at Manchester
Case No: CR-2019-MAN-000468 and CR-2020-MAN-000366
Mr Andrew Latimer (instructed by Hill Dickinson LLP) for Asher Miller and Henry Lan, the joint administrators of Fox Street Village Limited (in administration)
Mr Sebastian Clegg (instructed by WE Solicitors) for Mr Samuel Ip and Mr Mengnan Liu
Dr Michael Steiner and Elham Alibrahim attended remotely in person
Hearing dates: 16–17 th July 2020
APPROVED JUDGMENT
I direct that, pursuant to CPR PD 39A para 6.1, no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic
HHJ
(1) Introduction
These proceedings relate to the appointment, out of court, of Messrs Asher Miller and Henry Lan (“the Administrators”), as administrators of Fox Street Village Limited (“the Company”).
There are four applications before the Court.
2.1. The Administrators' application for an order authorising them to sell freehold property free from security under Paragraph 71 of Schedule B1 to the Insolvency Act 1986 (“the Sale Application”).
2.2. The Administrators' application for directions, under Paragraph 63, following decisions of the creditors to require them (1) to apply to the Court, under Paragraph 79, for an order providing for their appointment to cease to have effect; and (2) to resign pursuant to Paragraph 87 (“the Directions Application”).
2.3. Pursuant to the creditors' decisions and a court order dated 15 th June 2020, the Administrators' application for an order providing for their appointment to cease to have effect (“the Termination Application”).
2.4. An application by one of the creditors, Mr Samuel Ip, for an order removing the administrators from office (“the Removal Application”). This application was purportedly made under Paragraphs 81, 88 and 95 but, in substance, it was essentially made under Paragraph 88.
In anticipation of an order providing for the current administration to cease, I have been invited to make an administration order in respect of the Company.
The Company was formed for the purpose of developing land on the East side of Fox Street, Liverpool (“the Property”). This is its main asset. A substantial part of the Property has only been partly developed. However, units in this part of the development have been sold. The purchasers are the Company's main creditors.
The principal issue in dispute is whether the Administrators should dispose of the Property as a whole to a third-party purchaser or, with a view to completion of the development, to a consortium of the purchasers. A substantial number of the purchasers are aggrieved by the conduct of the Administrators in seeking to press ahead, as they see it, without giving them a proper opportunity to acquire the site. They also have wider concerns about the relationship between the Administrators and the debenture holder who appointed them. They thus seek to bring the administration to an end or obtain an order providing for the Administrators to be removed.
No creditors' committee has formally been established under the provisions of Paragraph 57 of Schedule B1 to the Insolvency Act 1986. However, it appears that a significant number of the purchasers have formed an unincorporated association, known as the Fox Street Village Investors Association (“the FSVIA”), to advance their interests and Mr Samuel Ip has identified himself in correspondence as a member of the Executive Committee.
(2) Factual sequence and procedural background
The Company was formed in 2014. The anticipated development encompassed 400 residential units comprised in five blocks, denoted Blocks ‘A’, ‘B’, ‘C’, ‘D’ and ‘E’. This was to be achieved by converting an existing building to create Block A and constructing four new blocks of residential flats.
Between 16 th March and 7 th May 2015, the Company acquired the Property under three registered transfers and obtained planning permission to convert Block A and build Blocks B, C and D incorporating 306 new residential units. On 20 th December 2016, planning permission was given for additional units on the land encompassed by Block E. Meanwhile, the development work commenced and by the end of 2017, Blocks ‘A’, ‘B’, ‘C’ and ‘E’ were complete and most of the units in each of these blocks had been sold.
It appears the development was initially funded from loans provided by Swainbanks Limited and Mr Rodney Swainbank. However, in August 2018, PH Invest Limited (“PHI”) advanced some £650,000 to help the Company refinance and complete the development. As security, the Company separately granted PHI a fixed charge over the Property and a debenture over the Company's property, assets and undertaking. Both charges were executed as a deed and the debenture was registered, as a floating charge, by the Registrar of Companies. However, PHI failed to register the fixed charge at HM Land Registry. As a registrable disposition under Section 27(2)(f) of the Land Registration Act 2002, PHI's rights under the fixed charge can only have taken effect as an equitable interest.
On 22 nd March 2019 Liverpool City Council issued an enforcement notice in which extensive breaches of planning control were identified. This included a failure to comply with the relevant plans and conditions in respect of car and cycle parking, site drainage, land decontamination, refuse storage, off-site highway works, acoustic insulation, amenity space and means of escape. Prohibition orders were served in respect of Blocks B, C and E demanding the cessation of occupation. The Company was required to demolish blocks B, C, D and E or make good the want of compliance. It appears that the enforcement notice has been successfully appealed owing only to procedural issues but the underlying issues about the breaches of planning control remain.
At this time, Block D was under construction but it amounted to no more than the shell of a building. Its foundations and structural frame were in place but there was no cladding or roofing and works of fitting out were yet to commence. The enforcement notice required the Company to demolish Block D and construct basement car parking as originally required by the planning approval.
By this stage, HMRC had already presented a winding up petition. On 12 th April 2019, the Company circulated proposals to its creditors for a company voluntary arrangement but these were withdrawn when it became apparent that they would not be accepted by a sufficient number of creditors.
On 24 th May 2019, Dr Michael Steiner issued proceedings in the Business and Property Courts in London (“the London Proceedings”) for the appointment of administrators. He did so as a creditor of the Company on the basis that, having purchased a unit in Block E, he was entitled to monies in respect of an assured rent which were unpaid. However, Dr Steiner's application was pre-empted when, on 30 th May 2019, PHI exercised its statutory power to appoint the Administrators out of court under Paragraph 14 Schedule B1 of the Insolvency Act 1986. On 14 th June 2019, ICC Judge Prentis made an order staying the London Proceedings on the basis that they would “stand dismissed upon the Company's exit from administration”.
In their Joint Report and Statement of Proposals dated 23 rd July 2019 (“the Administrators' Report”), the Administrators confirmed that it was not reasonably practicable to achieve the statutory purposes, in Paragraph 3(1)(a) and (b) of Schedule B1 to the Insolvency Act 1986, of rescuing the Company as a going concern or achieving a better result for the creditors as a whole than if the Company was wound up. On that basis, they were under a duty to perform their functions with a view to achieving the objective in Paragraph 3(1)(c), namely realising property in order to make a distribution to one or more secured or preferential creditors.
It was recorded in the Administrators' Report that they had instructed Lambert Smith Hampton (“LSH”), an independent firm of professional valuers and auctioneers, to assist in the valuation and marketing of the Company's assets. The Administrators confirmed that “although a formal valuation of the assets has not yet been received”, LSH “has indicated that value of the uncompleted block might be in the region of £500,000”. They exhibited an Estimated Statement of Affairs showing that, as at 30 th May 2019, the freehold property was thus estimated at £500,000 together with an “uncertain” and thus un-quantified amount, in respect of the “completed and unsold units” in Blocks A-C and E. The Administrators calculated that some £1,004,369 was owed to PHI and after accounting to them for the estimated proceeds of sale, they envisaged that there would be a shortfall of £504,369. The purchasers of units in Block D were treated as unsecured creditors. Overall, the total deficiency to creditors was estimated at £10,269,404.
By the time the Company was placed in administration, some of the purchasers had formed the FSVIA. This included some purchasers, who had acquired leasehold interests in the residential units of the completed blocks, and others who had contracted to purchase units in Block D. The purchasers of the unbuilt flats in Block D, who typically paid a deposit upon exchange of contracts, are entitled to purchasers' liens in respect of the airspace notionally allocated to their flat, Eason v Wong [2017] EWHC 207 at [33]–[54]. These were generally protected by the registration of unilateral notices in priority to PHI's unregistered fixed charge.
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...a plethora of cases from south of the border. A useful summary of the reported cases is found in Re Fox Street Village Ltd (in admin) [2020] EWHC 2541 (Ch) (HHJ Halliwell), from paragraph 61: "61. Paragraph 88 of Sch.B1 provides that “the court may by order remove an administrator from offi......